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Analyst: Foreclosure crisis likely to worsen
PREVIOUS VERSION OF THIS STORYRelated Topics: RICHMOND, Va.
RICHMOND, Va. (Map, News) - Government and community leaders from throughout Virginia gathered Wednesday to consider how they can reverse a disturbing spike in foreclosures.
The upshot of a series of panel discussions was that the crisis is likely to worsen before improved market conditions, legislation and other initiatives addressing the problem begin to have an impact.
Here are some of the questions examined at the summit, sponsored by the Virginia Foreclosure Prevention Task Force:
How bad is the situation in Virginia?
The state's foreclosure rate as of March was 1.30 percent - just more than half the national rate of 2.47 percent - but it's increasing much more rapidly than the U.S. average. Virginia's first quarter 2008 foreclosure rate was more than five times greater than the 0.24 percent recorded in the first quarter two years ago.
Which areas have been hit hardest?
More than half of the 18,200 homes in foreclosure in March were in the northern Virginia, Winchester and Culpeper areas, where many borrowers took out high-cost, nontraditional mortgages - either to buy homes they could not afford or consolidate household debt. Plunging home values have left many of these homeowners with negative equity and unable to refinance or sell to avoid foreclosure.
Exactly what are these "nontraditional" mortgages?
Subprime loans, which are higher-interest loans made to borrowers with poor credit scores; adjustable-rate mortgages, which offer a low rate for two or three years before a higher rate kicks in for the remainder of the loan term; and alt-A loans, which require little or no proof of income. Eighty-five percent of the foreclosures in Virginia are on these types of mortgages.
Why should a person who is not at risk of foreclosure care about the problem?
Each foreclosure lowers the value of other properties on the same block by at least 0.9 percent, according to Janneke Ratcliffe, a community development specialist at the University of North Carolina at Chapel Hill. Lower property values mean reduced tax revenues for local government, which in turn affects services. Global Insight, a forecasting and consulting firm, estimated last November that the gross national product would be 1 percentage point greater if not for the foreclosure crisis.
What is the prognosis for the near future?
"It's going to get worse before it gets better," said Joseph Schilling, assistant research professor and associate director of the Metropolitan Institute at Virginia Tech. There are still many adjustable-rate loans that haven't had the higher rate kick in; the economy is bad; and energy prices are climbing.
What is the solution?
Two panelists mentioned the need to develop sound mortgage products. Turmoil in the housing and credit sectors already has sharply reduced the availability of nontraditional mortgages. Governments and community groups also need to find ways to redevelop vacant property, panelists said.
John Nassar, vice president for federal affairs for The Center for Responsible Lending, said mortgage servicers who could modify loans to make them more affordable are not doing enough. The number of mortgages entering or completing foreclosure in May was nearly quadruple the 70,000 loan modifications made during the same month, he said.
Congress is considering several measures, including one that would allow homeowners in bankruptcy to have their mortgage loans modified. Others would delay foreclosures by up to nine months and require a reasonable loss mitigation effort before beginning foreclosure.
Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Comments from Examiner Readers
3:51 PM MST on Wed., Jul. 23, 2008 re: "Analyst: Foreclosure crisis likely to worsen"
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Examiner Reader said:
houses was selling way to high for years they have been way over priced everyone getting there lil cutt builders real estate people and banks have been over priceing houses for years now they will see eaither sale them at a price that reflects the true value or close up shop and go out of business,because people wont buy them anymore there is a glutt of older house's setting empty now for people to buy cheap .
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